This should be a huge red flag. If a business is spending the majority of the money from early investors to find more investors, rather than actually developing and marketing their product, that's pretty much a text book pyramid scheme.
The standard ICO consists solely of: 1) A slick website. 2) A well-produced video. 3) A whitepaper that discusses trivially standard blockchain features and goals. No differentiation necessary. 4) The appearance that prominent or well-credentialed people are working on the "technology".
That's all. The "product" is vapor. The real product is another pump & dump vehicle to satisfy the insatiable demand for pump & dump vehicles. This product is sold to the "investors" during the ICO. Said "investors" are even explicitly awarded more coins for shilling the pump everywhere by creating amateurish articles and YouTube videos.
Until one of two things happens: there are no more buyers for cryptocurrency, the price crashes, and all these ICO investors lose their shirts; or all money enters the cryptocurrency ecosystem, entrepreneurs develop new products & services that can only be bought with their proprietary ICO tokens, Ethereum replaces the dollar as the world reserve currency, and the dollar crashes. I would bet on the former being much more likely than the latter in terms of probabilities, but given that the outcome of the latter is that all savings of people who don't invest in cryptocurrencies are worthless, that fear may be driving a lot of the ICO speculation.
There are lots of ways to invest your money that aren't based on the dollar. Futures, real estate, company stocks, metals.
It makes it hard for legit people like my startup. We're actually using tech for an end case, not building tech on top of tech for tech's sake.
Invested in one that raised just over $1m, it was considered a huge amount at the time, they had a solid team, serious whitepaper and a rough alpha open sourced product that you could load up and use. A small team that struggled with limited funds and still going strong long down the track.
Today whitepapers have little scientific merit and are more brochures. These companies are raising 100's of millions with no product whatsoever.
Only time can tell legitimacy, and unless you have both the technical and economic ability to properly assess these offerings the best advice is to stay far away until a viable alpha product is created.
Anecdotal experience is that >95% of ico investors haven't even tried the product they have invested in. Seen people who spend hours a day on the forums spruiking yet can't even point to the binary download page when asked.